Speaking Loudly, But Doing Nothing on Trade Policy
by WILLIAM R. HAWKINS
November 23, 2010
The Obama Administration is trying to put a positive spin on what has been universally assessed as the failure of U.S. diplomacy at the G20 and APEC summits held this month in South Korea and Japan. Treasury Under Secretary Lael Brainard spoke about American policy at the prestigious Center for Strategic and International Studies in Washington on Nov. 16. "Before the crisis, our growth was unhealthy and unbalanced--fueled by cheap credit and fueling massive export surpluses abroad," he said, arguing this must change, "Countries that previously relied on the U.S. consumer to fuel their economic expansion in the run up to the crisis will need to identify new sources of growth."
Does this mean the United States is no longer willing to be the dumping ground for foreign production, keeping workers overseas employed and piling up profits for offshore industries while American firms and workers sit idle? If so, it is a sentiment long overdue. It is a shame that it has taken massive unemployment to finally make the point after a decade spent sending trillions of dollars out of the country, undermining the nation's finances and currency value as well as its production capacity.
But what does the administration plan to do to correct the situation and "re-balance" the U.S. economy? It was clear at the G20, most of whose members run trade surpluses in the American market, that foreign governments are not going to voluntarily give up the advantageous position they have won for their citizens. It was also clear, that despite brave talk, Washington is not ready to openly confront its trade "partners" who are holding down U.S. recovery efforts. So what was proposed by American negotiators was a neutral international standard to justify re-balancing efforts. As Brainard put it, "the G-20 will work in the coming months to develop a set of indicators that will serve as an early warning system to ensure preventive and corrective actions. The United States will now work closely with our partners in the G-20 and the International Monetary Fund to create these indicators and to assess country policy trajectories against them." He claimed "The United States proposed this plan and it was widely supported by the G-20 leaders."
Was it? Did China, Brazil and Germany, who led criticism of the proposal, really come on board at the end? Consider the actual language of the final joint leaders statement,
We will strengthen multilateral cooperation to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels. Persistently large imbalances, assessed against indicative guidelines to be agreed by our Finance Ministers and Central Bank Governors, warrant an assessment of their nature and the root causes of impediments to adjustment as part of the MAP, recognizing the need to take into account national or regional circumstances, including large commodity producers. These indicative guidelines composed of a range of indicators would serve as a mechanism to facilitate timely identification of large imbalances that require preventive and corrective actions to be taken. To support our efforts toward meeting these commitments, we call on our Framework Working Group, with technical support from the IMF and other international organizations, to develop these indicative guidelines, with progress to be discussed by our Finance Ministers and Central Bank Governors in the first half of 2011.
The statement is long and convoluted, as is the process outlined, but that is the point. The multilateral character of the process, the array of organizations involved, the need to take into account "root causes" and "national and regional circumstances" and to even "maintaining current account imbalance" all guarantee the "guidelines" will never take serious form. And there is no mention of how the guidelines would be implemented or enforced should they ever materialize.
Would a country victimized by excessive imbalances have to appeal to some international body, perhaps the IMF or WTO, to obtain permission to take corrective actions? This is supposedly the global governance model. Individual nations are not supposed to act in their own interests unless bodies which contain their rivals let them. Of course, most countries act on their own without any such reference, only resorting to international forums or "world opinion" when they want to block someone else. It is only the United States that wants to put barriers in its own path when it has the innate power (and sovereign right) to act to solve problems it has already identified.
Chinese President Hu Jintao, speaking for the dominant G20 opinion, said that the purpose of the organization was to "support developing countries in adopting measures to adjust economic structure, expand domestic demand and increase exports." The American notion that other nations would substitute domestic demand for exports is not tenable. For growth, demand is to be maximized at home and abroad; nothing will be surrendered voluntarily. And as domestic demand grows, it will be satisfied by domestic production, not imports from America. National champion firms, many state owned or controlled, are already being groomed to do this.
President Hu's plea that "we must be firmly committed to free trade, to the consensus reached at previous G20 summits, and to the effort of opposing all forms of protectionism and removing existing trade protectionist measures" was nothing more than a rallying cry to defend the unbalanced status quo. The American trade gap can only be righted by the adoption of "protectionist" measures to combat foreign mercantilist strategies such as currency manipulation, subsidized dumping, informal trade barriers and preferential tax policies like using the VAT as a substitute tariff. In practice, "free trade" is what the other guy is supposed to do.
Brainard claimed, "We are working hard to ensure that China makes progress in allowing its exchange rate to appreciate in response to market forces--as Chinese officials have reaffirmed their commitment to do." But again, Beijing has done no such thing. The day after Brainard spoke at CSIS, Guo Shuqing, chairman of China Construction Bank (the world's second largest bank, with the government holding a controlling share) and a member of the Communist Party's Central Committee, told a Beijing finance conference that global trade imbalances merely reflect a "division of labor" and should not be "tampered with." Indeed, there is "no need to change the global current account situation," he said.
The Treasury has refused to officially label China a currency manipulator for fear it would fuel calls for Washington to actually do something besides talk. In its annual report to Congress (released Nov. 17), the independent, bi-partisan U.S.-China Economic and Security Review Commission (USCC) called on both the Treasury and Congress to act to counter the negative impact on American industry and employment of Beijing's predatory trade practices. The USCC also dismissed the WTO, citing its failure to limit Chinese actions. According to the USCC's Republican Chairman Dan Slane, China "quite simply intends to wall off a majority of its economy from international competition."
It is past time for the United States to do the same if its leaders intend to rebuild American industry, employment and financial stability in a world of cut-throat economic rivalry. What President George W. Bush said in his 2004 State of the Union address regarding the United Nations applies equally well to the WTO, the IMF and the G20, "America will never seek a permission slip to defend the security of our people."
FamilySecurityMatters.org Contributing Editor William R. Hawkins is a consultant specializing in international economic and national security issues. He is a former economics professor and Republican Congressional staff member.
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